Date: 22.04.

2023

CS ANOOP JAIN CLASSES

CS PROFESSIONAL PROGRAMME
Daily Writing Practice
Suggested Answers

GOVERNANCE, RISK MANAGEMENT, COMPLIANCES AND ETHICS

Q1: ‘‘Internal control is a part of the internal check system.’’ Discuss.

Answer1: According to Standard on Auditing (SA) 315, internal control is the process designed,
implemented and maintained by those charged with governance, management and other
personnel to provide reasonable assurance about the achievement of an entity’s objectives
with regard to reliability of financial reporting, effectiveness and efficiency of operations,
and compliance with applicable laws and regulations.
Internal check refers to allocation of duties in such a manner that the work of one
person is checked by another while that other is performing his own duties in a normal
way. In other words, it may be referred to as a system of instituting checks on the day
to-day transactions which operate continuously as a part of routine system whereby the
work of one person is complementary to the work of another, the object being the
prevention or early detection of errors or fraud. The objective of such allocation of duties
is that no single individual has an exclusive control over any one transaction or group of
transactions.
Thus, internal check is a part of the overall internal control system and a method of
division of work with the objective of prevention or early detection of errors or fraud.
Hence, it is not correct to say that internal control is part of the internal check system.

Q2: State in brief, the components of internal control under the framework of the Committee of
Sponsoring Organizations (COSO)
Answer2: A system of internal control has five components under the Committee of Sponsoring
Organizations (COSO) framework which are as follows:
1. Control environment:
• Exercise integrity and ethical values.
• Make a commitment to competence.
• Use the board of directors and audit committee.
• Facilitate management's philosophy and operating style.
• Create organizational structure.
• Issue assignment of authority and responsibility.
• Utilize human resources policies and procedures.
2. Risk assessment:
• Create company wide objectives.
• Incorporate process-level objectives.
• Perform risk identification and analysis.
• Manage change.
3. Control activities:
• Follow policies and procedures.
• Improve security (application and network).
• Conduct application change management.
• Plan business continuity/backups.
• Perform outsourcing.
4. Information and communication:
• Measure quality of information.
• Measure effectiveness of communication.
5. Monitoring:
• Perform ongoing monitoring.
• Conduct separate evaluations.
• Report deficiencies.

DRAFTING, PLEADINGS AND APPEARANCES

Q3: A trust is created for two purposes, of which one is lawful and another unlawful, two purposes
cannot be separated, what will be the consequences ? What would be your answer, if two purposes
can be separated ?
Answer3:
(i) Every trust the purpose of which is unlawful will be void.
(ii) If the object is both lawful and unlawful and two operations cannot be separated,
the whole trust would be void.
(iii) If two operations can be separated, it will be void as far as unlawful part of the
object which can be separated.
(iv) The object of the Trust must be feasible and adequately defined, otherwise, the
trust agreement shall be void and the situation shall be restored to what it was
before the creation of the Trust.

Q4: Mention usual important conditions of debenture trust deed. Is debenture trust deed
registrable ?
Answer4: The usual important conditions of debenture trust deeds are as follows:
1. The main term of this trust deed must be an undertaking by the company to pay
the debenture holders’ principal and interest amount.
2. The trust deed usually gives a legal mortgage on block capital and a floating
security on the other assets of the company in favour of the trustee on behalf of
the debenture holders.
3. The trust deed gives in detail the conditions under which the loan is advanced.
4. The trust deed should specify in some detail the remuneration payable to the
trustee, their duties and responsibilities in relation to the trust property.
5. It also gives in detail the rights of debenture holders to be exercised through the
trustees in case of default by the company in payment of interest and principal
as agreed upon.
6. The trust deed should give the trustee the power to take possession of the
property charged when the security becomes enforceable.
The debenture trust deed is registrable and can be registered with the Registrar of
Assurances at the place where the registered office of the company is situated.

SECRETARIAL AUDIT, COMPLIANCE MANAGEMENT AND DUE DILIGENCE

Q5: What do you mean by Ethical Dilemma ?

Answer5: Dilemma means a situation in which a difficult choice has to be made between two
courses of action, either of which entails contravening a moral principle. An ethical dilemma
or ethical paradox is a decision-making problem between two possible moral imperatives,
neither of which is unambiguously acceptable or preferable. The complexity arises out of
the situational conflict in which obeying one would result in transgressing another.
Ethical Dilemma is the situation where a person’s view regarding selecting an object
or the alternative includes series of outcomes, which is very confusing. Each outcome
has a serious overlapping outcome, which cannot be at a time wrong for one person but
the same may be ethically wrong for the other.
An “absolute” or “pure” ethical dilemma only occurs when two (or more) ethical
standards apply to a situation but are in conflict with each other. In ethical dilemma if we
obey one decision then it would bring about disobeying another.
Ethical dilemma is also known as moral dilemma. Ethical dilemmas make the
situations too difficult. A person has to choose only one way from two of them - a moral
or an immoral way.

Q6: Distinguish between Meta-Ethics and Applied Ethics.

Answer6:
 Meta-Ethics or “analytical ethics” deals with the origin of the ethical concepts
themselves. It does not consider whether an action is good or bad, right or wrong.
Rather, it questions – what goodness or rightness or morality itself is. It is basically a
highly abstract way of thinking about ethics.
On the other hand, Applied Ethics deals with the philosophical examination, from a
moral standpoint, of particular issues in private and public life which are matters of
moral judgment. This branch of ethics is most important for professionals in different
walks of life including doctors, teachers, administrators, rulers and so on. There are six
key domains of applied ethics viz. Decision ethics {ethical decision making process),
Professional ethics {for good professionalism}, Clinical Ethics {good clinical practices},
Business Ethics {good business practices}, Organizational ethics {ethics within and
among organizations} and social ethics.

CORPORATE RESTRUCTURING, INSOLVENCY, LIQUIDATION & WINDING-UP

Q7: “Cross Border Mergers not only bring benefits but also assume risks”. Briefly
comment with specific provision under Companies Act, 2013.
Answer7:
As per Section 234(1) of the Companies Act, 2013, the provisions of cross border merger are
subject to every other law specifically providing for any restriction.
A company may merge with a foreign company incorporated in any of the jurisdictions
specified in Annexure B under Rule 25A of the Companies (Compromises, Arrangements and
Amalgamations) Rules, 2016 after obtaining prior approval of the Reserve Bank of India and
after complying with provisions of Sections 230 to 232 of the Companies Act, 2013 and these
rules. It is to be ensured that while entering into an outbound merger, it is with a company from
one of the specified jurisdictions.
Some of the risks associated with cross border mergers are:
1) Taxation: Despite Double Tax Avoidance Agreements, the tax implications in the host
countries may prove to be complex and tedious. This may increase the costs as a local
professional is required to be hired.
2) Regulatory landscape: The laws and regulations in the host country would be different
and may be difficult to comply. An unsuitable regulatory landscape may pose risks to a
cross border merger.
3) Political scenario: It is essential to assess the political situation of the country before one
enters into a merger with an entity belonging to that country. Unstable political situation
may lead to difficulties in carrying out business.
4) Valuation: Valuation is one factor which changes with countries due to changes in
exchange rate, stock market transactions and other macroeconomic developments.

Q8: The Board of directors of MNM Ltd., a small company is considering to merge with
BRQ Ltd., another small company. The Board wants the merger to be fast and seeks your
opinion about the conditions to be complied in this respect. Render your opinion based
on the provisions of Companies Act, 2013.
Answer:
In a Fast Track Merger under Section 233 of the Companies Act, 2013 and rules made
thereunder, broadly the steps followed are as under:
1. Both the companies need to check their Articles of Association and ensure that they have
the requisite authority under them to enter into a merger. If no, the Articles of Association
should be amended before the merger can take place.
2. Convene the Board meeting and prepare a draft scheme of merger or amalgamation.
3. Prepare the financial statement of assets and liabilities and get an Auditor’s Report
prepared.
4. Get the draft scheme approved in the Board meeting.
5. Both the companies need to send a notice to the Registrar of Companies (ROC) and Official
Liquidator (OL) of their respective regions inviting suggestions/ objections to the scheme,
if any, within 30 days of issuing the notice.
6. Notice to the ROC shall be in Form CAA-9.
7. Both the companies are required to file a declaration of solvency with their respective
ROCs. The declaration of solvency shall be accompanied by (a) Board Resolution (b)
Statement of Assets and Liabilities and (c) Audit Report.
8. Sending notice for holding shareholders meeting and creditors meeting.
9. Conducting the shareholders meeting and creditors meeting and getting the scheme
approved.
10. Filing the results of such meeting with the Regional Director and Official Liquidator by the
transferee company.

RESOLUTION OF CORPORATE DISPUTES, NON-COMPLIANCES AND REMEDIES

Q9: Write short notes on:

(i) ‘Consent Order’ issued by SEBI.
(ii) ‘Search’ and ‘Seizure’ under Prevention of Money Laundering Act (PMLA).
Answer9(i):
Consent order means an order setting aside administrative or civil proceedings
between the regulator and a person who may prima facie be found to have violated
securities laws. It may settle all issues or reserve an issue or claim, but it must precisely
state what issues or claims are being reserved A consent order may or may not include
a determination that a violation has occurred. Consent order provides flexibility of wider
array of enforcement and remedial actions which will achieve the twin goals of an appropriate
sanction remedy and deterrence without resulting to litigation lengthy proceedings and
consequent delays. Consent orders cannot be construed as waiver of statutory powers
by Securities Exchange Board of India (Board). The board always has the right to proceed
for appropriate action if it cannot achieve its objectives through consent order. The provisions
of Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018
regulate the issuance of Consent/ Settlement Orders.

Answer 9(ii)
Search and seizure
Section 17(1) of the Prevention of Money Laundering Act, 2002 (PMLA)
Where the Director or any other officer not below the rank of Deputy Director authorised
by him for the purposes of this section of 17, on the basis of information in his possession,
has reason to believe (the reason for such belief to be recorded in writing) that any
person:
(i) has committed any act which constitutes money-laundering, or
(ii) is in possession of any proceeds of crime involved in money-laundering, or
(iii) is in possession of any records relating to money-laundering, or
(iv) is in possession of any property related to crime,
then, subject to the rules made in this behalf, he may authorise any officer subordinate
to him to:
(a) enter and search any building, place, vessel, vehicle or aircraft where he has
reason to suspect that such records or proceeds of crime are kept;
(b) break open the lock of any door, box, locker, safe, almirah or other receptacle for
exercising the powers conferred by clause (a) where the keys thereof are not
available:
(c) seize any record or property found as a result of such search;
(d) place marks of identification on such record or (property, if required or make or
cause to be made extracts or copies therefrom,
(e) make a note or an inventory of such record or property;
(f) examine on oath any person, who is found to be in possession or control of any
record or property, in respect of all matters relevant for the purposes of any
investigation under this Act.
According to sub-section (1A) of Section 17 of PMLA, where it is not practicable to
seize such record or property, the officer authorised under sub-section (1), may make an
order to freeze such property whereupon the property shall not be transferred or otherwise
dealt with, except with the prior permission of the officer making such order, and a copy
of such order shall be served on the person concerned:
Provided that if, at any time before its confiscation under sub-section (5) or subsection
(7) of section 8 or section 58B or sub-section (2A) of section 60, it becomes
practical to seize a frozen property, the officer authorised under sub-section (1) may
seize such property.

CORPORATE FUNDING & LISTING IN STOCK EXCHANGES

Q11: SGX’s Main Board listing requirements are benchmarked against international
standards and are in line with best practices from developed jurisdictions. Discuss
in brief.
Answer11: Singapore is one of the few Asian countries with an “AAA” rating. As a listing destination
for global companies, SGX listing rules provide flexibility for companies with diverse
backgrounds to source for public financing in Singapore. While SGX continues to attract
more global companies, its listing standards and the quality of listed companies are
never compromised.
Singapore operates a predominantly disclosure-based regime for capital markets.
SGX's Listing Rules augment the disclosure-based regime with high baseline admission
standards and continuing requirements for issuers. A cornerstone of the regime is to
require listed issuers to make timely disclosure of all material information to the
marketplace.
SGX's regulatory team reviews listing applications to ensure that issuers meet the
minimum requirements prescribed. In reviewing listing applications, SGX's regulatory
team relies on due diligence carried out by issue managers and their representations to
determine the applicants suitability to list.

Q12 Explain the process of listing GDRs on the Euro MTF.

Answer12:
The Luxembourg Stock Exchange (LuxSE) offers a choice of two markets, the main
EU-regulated market (called "the BdL market" or the Bourse de Luxembourg market")
and an exchange-regulated market (called "the Euro MTF")
When listing on the Euro MTF (Multilateral Trading Facility) market, the Luxembourg
Stock Exchange is in charge of prospectus approval and the prospectus is drawn up
according to the rules and regulations.
Listing on the Euro MTF will require submission of a prospectus to LuxSE. Once
your prospectus has been reviewed and approved, your share or GDR will be listed and
admitted to trading.
• Choose a listing agent (optional) : It is not mandatory to appoint a listing
agent. Either the issuer itself or a company acting on its behalf can submit
requests for approval.
• Listing Requirements : In order to list on the Euro MTF, a security must fulfil
the following criteria, among other things:
— Minimum capital of €1,000,000, or equivalent value in other currencies
— Minimum public free float of 25%
— Securities should be eligible for clearing and settlement
— Securities should be freely negotiable and fungible
• Listing Process :
- File a prospectus : To begin the listing process, the following documents to
be sent to LuxSE:
o A copy of the prospectus of issuer;
o Application form
o Undertaking letter
o Articles of association
o Existing agreements/conventions
o The last three annual financial reports (if published)
- Prospectus review : A first set of comments on a complete draft prospectus
will be sent to you within a maximum period of three business days from the
date of receipt of the filed application. Additional comments following
submission of an updated draft prospectus will be provided within a maximum
of two business days after submission.
- Final submission : Listing can take place after receipt of the following items:
1. Final version of the prospectus
2. First listing price
• Fees : All fees are to be paid to LuxSE and are priced in euros. The fee structure
will vary depending on whether or not issuer is a "recently established company",
i.e. a company that has not published or registered annual accounts for the
three previous financial years.
• Continuing Obligations : After listing and admission to trading, issuers must
fulfil specific reporting obligations. For example, issuers must file information
and scheduled corporate events with LuxSE.
• LEI Code : In the context of Markets in Financial Instruments Directive (MiFID
II) / Markets in Financial Instruments Regulation (MiFIR) and the Market Abuse
Regulation (MAR), the LuxSE is obliged to collect a 'Legal Entity Identifier' or
'LEI' code from any issuer operating on its regulated market (Bourse de
Luxembourg) and on its Multilateral Trading Facility (Euro MTF) and communicate
it to the relevant supervisory authorities.